STIMULI AND PUBLIC DEBT IN ASEAN LISTED D-8 MEMBERS: A HARROD-DOMAR MODEL WITH AN ISLAMIC PERSPECTIVE ON DEBT SUSTAINABILITY
DOI:
https://doi.org/10.53840/ijiefer183Keywords:
Public Debt, Harrod-Domar, Savings, InvestmentAbstract
The D-8 member countries have failed to achieve sustainable economic growth, despite various fiscal stimuli, due to structural inefficiencies and imbalances in savings and investment dynamics. This study employs the Harrod-Domar growth model to analyze the impact of fiscal stimuli on public debt specifically narrowing the scope to the ASEAN-listed D-8 members, using panel data from 1996 to 2023 sourced from the World Bank. The findings reveal stark contrasts between member countries, particularly Malaysia and Indonesia. Malaysia, with a higher savings rate (LGDS = 1.711), demonstrates better fiscal discipline and debt management, reflected in a negative model intercept. In contrast, Indonesia, with a lower savings rate (GDS = 0.876), struggles with a smaller domestic savings base, relying heavily on borrowing, which exacerbates its public debt burden. The study highlights systemic issues across D-8 countries, including insufficient investment in productive sectors, low savings rates, and a dependence on debt-financed expenditures. The Harrod-Domar model illustrates that these nations’ growth strategies are inadequate for ensuring long-term economic sustainability. These findings underscore the urgent need for policy reforms to enhance domestic savings mobilization, improve investment efficiency, and reduce reliance on external debt to foster sustainable development.
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